The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Peter Nygard's "alarming response" to the crisis engulfing his global fashion empire was to threaten to transfer its assets to a new company just one day after stepping down as its chairman.

The flamboyant Lyford Cay resident's plan to save his 52 year-old business from "the self-admitted worst financial crisis in its 52-year history", and potentially leave creditors out to dry, is detailed in court documents filed by the Nygard Group's stunned lenders who successfully petitioned the Canadian courts to place it into receivership.

Robert Dean, White Oak Commercial Finance's executive vice-president and head of risk management, alleged in a March 23, 2020, affidavit that Mr Nygard's fashion retail and distribution conglomerate had been teetering on the verge of "bankruptcy" since last year without lenders stepping in to provide funds.

He accused Mr Nygard of being personally "obstructionist and uncooperative" as Richter Advisory, the financial consultants appointed by White Oak and Second Avenue Capital Partners, its fellow lender, attempted to uncover his empire's true financial position and address multiple alleged breaches of the $40m credit facility they had made available to Nygard Group.

Revealing that Mr Nygard's business, which he owns 100 percent, features more than 30 companies some of which are domiciled in The Bahamas, Mr Dean alleged that White Oak/Second Avenue appeared on the scene as a "replacement lender" when Bank of Montreal headed for the exit.

"Prior to entering into the credit agreement with the lenders, the Nygard Group was financed by Bank of Montreal (BMO) pursuant to a $35m revolving facility," he said. "By the summer of 2019, the Nygard Group was in default of the BMO facility, after having suffered material losses from its operations in its fiscal years 2018 and 2019.

"It entered into a forbearance agreement as of September 6, 2019, which provided for an additional $7m demand loan that was advanced against certain owned real estate assets. The forbearance agreement provided for an expiry date of November 30, 2019, which could be extended to December 31, 2019.

"Given the Nygard Group's continued financial losses, BMO was not willing to negotiate a further extension of the BMO forbearance agreement. As a result, BMO informed the Nygard Group that it needed to find a replacement lender."

Enter White Oak/Second Avenue, which after conducting due diligence on Nygard Group's business model and financial projections, agreed that $6m would provide sufficient liquidity to keep the Lyford Cay resident's business operational.

This resulted in them providing a $40m revolving credit facility secured on various Nygard Group real estate assets, and by various guarantees. Mr Dean alleged that the latter's Canadian attorneys reviewed the lending agreement and confirmed it was binding and enforceable - something that he said directly contradicts subsequent assertions by Mr Nygard and his company.

And, within days of the negotiations closing and the facility being made available, Mr Dean and White Oak accused the Nygard Group of defaulting on their arrangement. "Almost immediately, in early January 2020, the borrowers indicated that they would require additional funding of approximately $10m," they alleged.

"The borrowers provided White Oak with various non-compliant borrowing base certificates and took the position that certain real property owned by the borrowers should be included as part of the borrowing base.

"Furthermore, the Nygard Group provided a cash flow forecast indicating an unfavourable availability projection variance of approximately $8m when compared to the budget on which the credit agreement was negotiated, settled and closed."

Abe Rubinfeld, Nygard Goup's general counsel, responded to White Oak's notice of default by claiming that their arrangement was "never agreed to". This assertion was also allegedly repeated in subsequent e-mails by Mr Nygard who, with his general counsel, argued that White Oak should pay a $1.6m penalty because it never funded his empire for eight days.

"In one of these e-mails dated January 23, 2020, Mr Rubinfeld informed counsel for White Oak that the Nygard Group had outstanding payables of $11m and that 'if we don't pay for our inventory that is sitting in customs and obtain delivery of these goods to the stores by February 1 it will be certain bankruptcy'," Mr Dean alleged.

White Oak finally made a $1.8m advance to Nygard Group in early February 2020 amid repeated dire warnings about the group's financial health. Its director of financial corporate services allegedly warned: "We are now out of time and the business will fail if the proper financial arrangement are not made immediately."

After Richter Advisory was appointed by the lenders, Mr Dean alleged: "Mr Nygard continued to be obstructionist and uncooperative in his dealings with Richter. For instance, in an e-mail dated February 12, 2020, he stated that 'I cannot let the [business] be run by accounts nor by bankers [...] This access is over by 10 a wed12 [sic] there is no reason left - we have been more than cooperative'.

"In response to a follow up information request from Richter, on February 13, 2020, Mr. Nygard wrote: "Pls complete THU13 as the final day: it's [sic] not reasonable to expect this to go past 4 days nor is it practical or affordable'."

The same day, Mr Nygard and his empire were hit with the rape, sexual assault and sex trafficking class action lawsuit by 10 women in the southern New York federal courts. This was immediately followed by the FBI/police raid on the group's New York and California offices, and had the instant impact of "destabilising" the business.

"Later that day, Mr Nygard publicly announced that he would step down as chairman of the Nygard Group and would divest his ownership interest in the companies," Mr Dean said.

"The following day, on February 26, 2020, White Oak, its counsel and Second Avenue attended a call with senior management of the Nygard Group, Mr. Nygard and company counsel, wherein Mr. Nygard explained that he intended to resign and 'divest his interest' in the Nygard Group, and the Nygard Group intended to immediately set up a new company and rebrand its Nygard label merchandise.

"The Nygard Group did not acknowledge that it could not sell its assets or reorganise its corporate structure without White Oak's consent, although its counsel stated that the matter would need to be further discussed internally. Additionally, the Nygard Group refused to recognize that there had been a serious erosion of the lenders' collateral under the credit agreement.

"To the contrary, Mr Nygard took the position that the lenders were required to provide an additional $3.3m in funding to the Nygard Group for, among other things, further inventory purchases, notwithstanding the multiple events of default under the credit agreement."

Mr Dean alleged that the lenders "lost all trust and confidence" in Nygard Group and its management as a result of these events. "The Nygard Group itself has confirmed to White Oak on multiple occasions that without additional funding it will be bankrupt," he added.

"Additionally, the serious allegations made against Mr Nygard and the corporate defendants have resulted in the cancellation of existing and future orders from its largest wholesale customer, and media reports detailing other wholesale customer issues.

"The Nygard Group's alarming response to this development is to suggest that it will convey its assets to a new company, notwithstanding the fact that these assets form the lenders' collateral under the credit agreement.

"Given the current state of the financial and governance crisis facing the Nygard Group's business, the Nygard Group is in urgent need of court supervision with the assistance of a court officer."